Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 82

Notes receivable—interest accrual and collection Moiton Co.’s assets include notes receivable from customers. During fiscal 2010, the amount of notes receivable averaged $46,250, and the interest rate of the notes averaged 6.4%.

Required:

a. Calculate the amount of interest income earned by Moiton Co. during fiscal 2010 and show in the horizontal model or write a journal entry that accrues the interest income earned from the notes.

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b. If the balance in the Interest Receivable account increased by $1,200 from the beginning to the end of the fiscal year, how much interest receivable was col­lected during the fiscal year? Use the horizontal model, a T-account, or write the journal entry to show the collection of this amount.

Step 1 of 5

b.

Calculate the present value of $100,000 if the interest is compounded quarterly

The interest rate is 16% and the period is five years.

Convert the annual discount rate of 16% to a discount rate per compounding period of four months (four periods per year) as below:

Adjust the number of periods by multiplying number of years (5 years) by the number of compounding periods per year (4 periods per year), as below

Now calculate the present value of $100,000, using the present value factor for discount rate of 4% and 20 periods, as below:

Present value factor for discount rate of 4%, 20 periods is 0.4564, as per the present value table.

The present value of $100,000 is , if the interest is compounded quarterly.